George Osborne is bracing himself for more grim economic news with figures
expected to show this week that Britain has lurched into its first “triple
dip” recession.

Forecasters at Morgan Stanley, Scotia Bank and J P Morgan all expect Thursday’s GDP numbers will show the economy shrank again in the first quarter of this year.

Any contraction would represent a recession, which is judged to be two or more consecutive quarters of falling economic activity.

Confirmation of an unprecedented triple-dip would add to pressure on the Chancellor, whose austerity plans were last week criticised by the International Monetary Fund as “playing with fire”.

On Friday Fitch became the third credit ratings agency to strip Britain of its AAA rating, citing concerns about the country’s “weaker economic and fiscal outlook”. Losing the highly-prized standard could raise the already vast cost of servicing Britain’s £1.1 trillion national debt.

The Chancellor faces criticism from two flanks, with Labour calling for a slower deficit reduction plan and many Tory backbenchers demanding faster cuts to tax and public spending in a bid to power the recovery.

Economists at Morgan Stanley believes Thursday’s GDP first estimate by the Office for National Statistics will show that the economy shrank by 0.3 per cent between January and March of this year. Scotia Bank predicts a contraction of 0.2 per cent.

The economy shrank by 0.3 per cent in the final quarter of 2012 and figures published last week showed that unemployment rose by 70,000 between December and February.

Jonathan Ashworth, an economist at Morgan Stanley, said that Britain’s construction industry is performing particularly badly. The sector has been hit badly by the weak housing market and the reluctance of banks to lend.

Mr Ashworth said that if this week’s growth number is as bad as he fears he would expect the Bank of England’s Monetary Policy Committee to embark on another round of Quantitative Easing at its May meeting.

Chris Leslie MP, Labour’s shadow financial secretary to the Treasury, said: “It’s been a disastrous week for George Osborne’s economic policy. After nearly three years of stagnation we need to see decisive evidence this week that a strong and sustained recovery is finally underway or the Chancellor will be in real trouble.”